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12.27.11 Weekly Recap

Gold prices have been affected by the ongoing European debt issues. The precious metal is tied closely to the fate of both the dollar and the euro. Moves by the two currencies this week have been reflected in the price of Gold. The recent trend for Gold has been to track the euro and move opposite the dollar. Although there has been a correction in Gold prices over the past few months, most experts are unfazed and see the precious metal rising again in 2012. Jeffery Wright, a senior research analyst with Global Hunter Securities, said that Gold prices of $2,000 are likely if Washington lawmakers continue to be at odds on how to address fiscal problems in the U.S. Wright also said, “Once we get back into those discussions, there will be further pressure on the U.S. dollar and a refocusing on Gold as a safe-haven asset.”

The death of North Korean leader Kim Jong Il was at the forefront of the news. Il’s death only adds to the list of uncertainties affecting the world economy; there is concern about the effects his passing will have on North Korea’s economy and its relationship with South Korea. Stock markets slipped over comments made by European Central Bank (ECB) President Mario Draghi regarding the ECB not being able to step in to buy bonds based on the founding treaty of the eurozone. Other news causing concern was England’s refusal to participate in an increase of the IMF’s resources to help the debt crisis. There are still plenty of hurdles and difficulties within the eurozone, including Finland’s resistance to how the European Stability Mechanism is run, which could cause issues as early as July 2012. Fitch Ratings stated that it is too late for a comprehensive solution to be reached in Europe’s debt crisis.

Each year around this time, we begin to see stock and Gold price predictions for the coming year. Last year, most of the predictions for stocks were bullish, and Gold predictions were more modest. But there was no way to predict the Arab Spring, the earthquake and tsunami that hit Japan, the downgrade of the U.S. credit rating, the continued lack of jobs or the severity of the European debt crisis. In the end, it has been a poor year for stocks and another robust year for Gold, despite the recent price decline. It makes one wonder what the unexpected (Black Swan) events might be in 2012. According to an article by Patti Domm, CNBC news editor, there are five geopolitical risks we need to watch for in 2012:

The conflict with Iran. Tensions already are escalating as Western countries seek to push sanctions on Iran for its nuclear weapons program.

North Korea. Who is this new 28-year-old leader? There is very little known about Kim Jong Un, who leads a secretive and closed country that possesses nuclear weapons.

Iraq’s civil war. The exit of U.S. forces leaves behind an unstable situation that creates even more uncertainty amid the world’s major oil supplies.

Deteriorating Pakistani-U.S. relationship. The U.S. relies on Pakistan to assist in the ongoing war on terrorism. However, the U.S. also needs India as an ally, which creates quite a balancing act.

Russian elections. There could be a shift of power in Russia, and this brings added uncertainty. Russia still carries economic clout and remains the world’s largest oil producer.

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